For many business owners bankruptcy seems scary but, sometimes, declaring bankruptcy is a worthwhile strategy. If you are considering the possibility of declaring bankrupting for your business, this article will review some key points you must know. Two of the most popular types of bankruptcy include Chapter 7 and Chapter 11.
Under a Chapter 7 bankruptcy, the judge gets rid of the business debts while under a Chapter 11 bankruptcy the owner must create a plan to repay debtors. While Chapter 11 bankruptcy allows the business to continue running, bankrupting under Chapter 7 forces the closing or selling of the business.
Although these laws may seem gloomy, occasionally they are the business owner's most practical choice. A Chapter 7 bankruptcy is worthwhile when the business has no chance of making a future profit. It also makes sense if the company has no assets and the debts are insurmountable. In these cases, undergoing a bankruptcy may be the best decision the business owner can make.
Although bankruptcy is an option, it also has some negative outcomes. A business owner should always consider the legal fees associated with filing bankruptcy. They are often high for both Chapter 7 and Chapter 11. Some companies find themselves filing for bankruptcy only to close their business anyway to pay the legal fees. Remember that lawyers do not work for free. Get an estimate before you decide to file.
Recovering From Bankrupting Your Small Business
Small businesses owners bankrupting their companies should know that recovering from a Chapter 11 filing is possible. The goal of Chapter 11 bankruptcy is to place the company on more stable financial ground. While the courts relieve the company's debts, they also help in reorganizing it. They hope is to make it more profitable in the future. While this outcome appeals to many small business owners, they must realize that bankruptcy puts them at the mercy of the United States Trustee. The Trustee now oversees all business transactions until the company emerges from bankruptcy. For many business owners this is troubling. They have lost the freedom associated with running their own business. Business owners who are not comfortable with this degree of oversight should not seek out a Chapter 11 bankruptcy to solve their financial problems.
Avoiding Bankrupting
There are many useful tips for avoiding the need for bankrupting but unfortunately even with the best of plans there is always the possibility that bankruptcy is necessary. In these cases, it is wise for the business owners to recognize the need for it early on. This helps them avoid compounding the company's financial problems. In general the methods owners use to prevent bankruptcy are associated with to good, general business practices.
http://www.add-articles.com/Article/When-Bankrupting-Is-Worthwhile/77349
Thursday, July 19, 2007
Bankruptcy LLC Explained
Since Limited Liability Corporations (LLC) are a relatively new type of business entity, LLC owners have some difficulty finding out how courts will treat their bankruptcy LLC cases. As an LLC declaring bankruptcy, the owner may get some liability protection since their business is a separate legal entity. However, this protection is not absolute. Why? B ecause as CEO of the legal entity, the owner has fiduciary duties that effectively give them the same liabilities as a sole proprietorship.
So some important questions remain. Will the judge treat them like an LLC, as a corporation or as a partnership? What will happen during a bankruptcy LLC when the company has only one owner? Currently, there is no code or law that directly addresses bankruptcy LLC proceedings.
Partnership Versus Corporation In Bankruptcy LLC
There are two different ways a bankruptcy court may handle the case of Limited Liability Corporation with a single owner. First, the judge may treat the bankruptcy LLC like a partnership. In this case the court would dissolve the LLC and deal out all remaining assets to creditors. Anything remaining goes to the owner. And as in most business bankruptcy cases, there isn't usually much left.
But the judge may decide the LLC is a corporation. Here the judge would not dissolve the owner from the bankruptcy LLC. The former owner could give over ownership interest to another party. If the former owner decided not to do this, the bankruptcy judge would treat the former owner like a corporate shareholder. The owner would not have to give up stockholdings, just as a shareholder wouldn't in a large corporation bankruptcy case. Usually under this scenrio, the owner ends up a little better off.
Legalities of a Bankruptcy LLC
One of the greatest drawbacks to filing bankruptcy as an LLC is that owner has no idea how the judge will treat them. Unfortunately, there are no specific rules for dealing with a Limited Liability Corporation in a business bankruptcy filing.
Because of this, there may be several different factors that a bankruptcy court considers when deciding what to do. The most important factor is the number of member owners in the corporation. That said bankruptcy laws do not define the number of individual owners a corporation must have, especially for an LLC.
Because the lines are so blurry here, it is hard to tell how the bankruptcy court will decide who needs to consent to the bankruptcy filing. All members of the LLC may have to consent to the bankruptcy LLC filing. On the contrary if the judge treats it like a corporation, then only one member must consent. Most often in LLC proceedings, the bankruptcy judge looks to state laws and codes to determine how to deal with the bankruptcy. Therefore these proceedings may vary from state to state.
Filing The Bankruptcy LLC
Before filing for bankruptcy as a corporation or partnership, schedule an appointment with a bankruptcy lawyer to discuss these issues. As an alternative, you can also talk to state or county bankruptcy officials who can clarify how they will determine the proper procedures for bankruptcy LLC. Make sure you interview several lawyers before you select one. They should specialize in bankruptcy and be well versed in the specific rules for your state. If possible, try to find an attorney who has experience filing bankruptcy cases for Limited Liability Corporations.
http://www.add-articles.com/Article/Bankruptcy-LLC-Explained/77357
So some important questions remain. Will the judge treat them like an LLC, as a corporation or as a partnership? What will happen during a bankruptcy LLC when the company has only one owner? Currently, there is no code or law that directly addresses bankruptcy LLC proceedings.
Partnership Versus Corporation In Bankruptcy LLC
There are two different ways a bankruptcy court may handle the case of Limited Liability Corporation with a single owner. First, the judge may treat the bankruptcy LLC like a partnership. In this case the court would dissolve the LLC and deal out all remaining assets to creditors. Anything remaining goes to the owner. And as in most business bankruptcy cases, there isn't usually much left.
But the judge may decide the LLC is a corporation. Here the judge would not dissolve the owner from the bankruptcy LLC. The former owner could give over ownership interest to another party. If the former owner decided not to do this, the bankruptcy judge would treat the former owner like a corporate shareholder. The owner would not have to give up stockholdings, just as a shareholder wouldn't in a large corporation bankruptcy case. Usually under this scenrio, the owner ends up a little better off.
Legalities of a Bankruptcy LLC
One of the greatest drawbacks to filing bankruptcy as an LLC is that owner has no idea how the judge will treat them. Unfortunately, there are no specific rules for dealing with a Limited Liability Corporation in a business bankruptcy filing.
Because of this, there may be several different factors that a bankruptcy court considers when deciding what to do. The most important factor is the number of member owners in the corporation. That said bankruptcy laws do not define the number of individual owners a corporation must have, especially for an LLC.
Because the lines are so blurry here, it is hard to tell how the bankruptcy court will decide who needs to consent to the bankruptcy filing. All members of the LLC may have to consent to the bankruptcy LLC filing. On the contrary if the judge treats it like a corporation, then only one member must consent. Most often in LLC proceedings, the bankruptcy judge looks to state laws and codes to determine how to deal with the bankruptcy. Therefore these proceedings may vary from state to state.
Filing The Bankruptcy LLC
Before filing for bankruptcy as a corporation or partnership, schedule an appointment with a bankruptcy lawyer to discuss these issues. As an alternative, you can also talk to state or county bankruptcy officials who can clarify how they will determine the proper procedures for bankruptcy LLC. Make sure you interview several lawyers before you select one. They should specialize in bankruptcy and be well versed in the specific rules for your state. If possible, try to find an attorney who has experience filing bankruptcy cases for Limited Liability Corporations.
http://www.add-articles.com/Article/Bankruptcy-LLC-Explained/77357
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